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The counter argument to this is the YC Continuity fund [1]. It already does invest in some YC co A rounds, and them not investing does not have a negative signa

The counter argument to this is the YC Continuity fund [1]. It already does invest in some YC co A rounds, and them not investing does not have a negative signal. It is in YC's best interest to try to avoid negative signaling about any companies they've funded as that potentially limits YC's upside. [1] https://www.ycombinator.com/continuity/ https://www.ycombinator.com/continuity/

jacquesm 9y ago
I think I covered that. Do you realize that this is not yet in a stage where there is any kind of exclusivity? That's the biggest hurdle to overcome. There was a time when YC needed outside financiers more than they needed YC, but that's rapidly changing and once one of the mega-hits exits and YC really becomes flush that door will open wide enough for another evolution. I think the tell-tale will be once YC contracts will start to include language giving them the option to fund all future rounds through a right of first refusal or other language with similar effects. This is a huge exercise in leverage and critical mass, one of the most interesting stories of the last 2 decades in start-up land. The end game is pretty obvious and I really wonder what the next steps will look like. But from the moment the continuity program was launched the cards are essentially on the table for all to see.
- cornellwright 9y ago
  A big part of how YC got where they are is by being more founder friendly than anyone else, creating an impressive positive feedback loop. Adding exclusivity would destroy that. The partners have a much more long term focus than this.
  - jacquesm 9y ago
    > Adding exclusivity would destroy that. Not necessarily as long as founders believe they are 'the lucky few' and as long as going through YC substantially increases your chances to make it. And thinking you are part of the lucky few is something a lot of founders do intuitively. No further action required there. And if the numbers are good, why not, as long as the chances of going through YC substantially increase your ability to hit one out of the park those companies that really believe in themselves will still apply. Keep in mind that 'failed YC' (not getting accepted after applying) is already a negative signal and founders are not likely to disclose that they applied for YC but did not make it when looking for alternative funding. So there already is a potentially negative signal in play, it's just that it isn't public enough to make a difference. The ratio between YC funded start-ups and start-ups funded by outsiders (for follow on investments) is the one to watch, that will be the signal.
    - cornellwright 9y ago
      Not getting accepted isn't seen this way. YC itself says they can't fund all the companies they want to. I know a number of founders who were rejected from YC and while they don't plaster it on their website, they don't hide it if it comes up. YC is not some magic oracle at picking startups. They just have way better dealflow because of their reputation and how simple their process is.
      - jacquesm 9y ago
        > YC itself says they can't fund all the companies they want to. No reason that won't change, and even if it did why would they ever make that public? In other words, they'd say that, even if it were not true. > I know a number of founders who were rejected from YC and while they don't plaster it on their website, they don't hide it if it comes up. It stands to reason that there are in a pool that large founders that feel one way or the other. The HN wisdom is that if you let such a rejection affect you then you weren't successful start-up founder material to begin with but in reality it isn't all that simple. > YC is not some magic oracle at picking startups. That must be why the chances of getting follow on investment from other investors is so much lower once you reach demo day /s. YC start-ups are generally oversubscribed, especially when compared to non YC start-ups, so even if YC is not an oracle it definitely is a stamp of approval. Lack of such a stamp after trying to obtain it is a negative signal of sorts. And getting continuity funding or not is another signal of that kind. > They just have way better dealflow because of their reputation and how simple their process is. Yes, that reputation is what this is about, and that reputation is in a feedback loop. The process being simple has little to do with it, most start-up accelerators have a simple process. The big factors are: founder friendly, huge alumni network with vast amounts of knowledge, huge pool of people willing to work for YC backed start-ups, coming to America, large chance of finding follow on investment once you are accepted. Note how all it would take to make a play at this is to drop one single line from the YC continuity program terms, which is that YC continuity won't take the lead. The existence of that one line is the sign that they are not yet ready for a play like that. But that won't always be the case and at some point YC will be flush enough that they can run their incubator at the next higher level.
  - alexasmyths 9y ago
    As long as the terms are not too severe it might work. YC might reserve the right up to 20% of any given round, at the price the lead investors pick. This is not too onerous. If you're doing A,B,C and pass through due dilligence, well, maybe it's one less hassle, i.e. finding that n-th VC to come in on the round.
  - mbesto 9y ago
    A big part of how <insert startup here> got where they are was to do unscalable things, and then they did things that scaled. This is the parent's point - the strategies and behaviors companies exemplify when they are in the early stages is very different from the ones they utilized when they hit scale.

jacquesm 9y ago

I think I covered that. Do you realize that this is not yet in a stage where there is any kind of exclusivity? That's the biggest hurdle to overcome. There was a time when YC needed outside financiers more than they needed YC, but that's rapidly changing and once one of the mega-hits exits and YC really becomes flush that door will open wide enough for another evolution. I think the tell-tale will be once YC contracts will start to include language giving them the option to fund all future rounds through a right of first refusal or other language with similar effects. This is a huge exercise in leverage and critical mass, one of the most interesting stories of the last 2 decades in start-up land. The end game is pretty obvious and I really wonder what the next steps will look like. But from the moment the continuity program was launched the cards are essentially on the table for all to see.

cornellwright 9y ago
A big part of how YC got where they are is by being more founder friendly than anyone else, creating an impressive positive feedback loop. Adding exclusivity would destroy that. The partners have a much more long term focus than this.
- jacquesm 9y ago
  > Adding exclusivity would destroy that. Not necessarily as long as founders believe they are 'the lucky few' and as long as going through YC substantially increases your chances to make it. And thinking you are part of the lucky few is something a lot of founders do intuitively. No further action required there. And if the numbers are good, why not, as long as the chances of going through YC substantially increase your ability to hit one out of the park those companies that really believe in themselves will still apply. Keep in mind that 'failed YC' (not getting accepted after applying) is already a negative signal and founders are not likely to disclose that they applied for YC but did not make it when looking for alternative funding. So there already is a potentially negative signal in play, it's just that it isn't public enough to make a difference. The ratio between YC funded start-ups and start-ups funded by outsiders (for follow on investments) is the one to watch, that will be the signal.
  - cornellwright 9y ago
    Not getting accepted isn't seen this way. YC itself says they can't fund all the companies they want to. I know a number of founders who were rejected from YC and while they don't plaster it on their website, they don't hide it if it comes up. YC is not some magic oracle at picking startups. They just have way better dealflow because of their reputation and how simple their process is.
    - jacquesm 9y ago
      > YC itself says they can't fund all the companies they want to. No reason that won't change, and even if it did why would they ever make that public? In other words, they'd say that, even if it were not true. > I know a number of founders who were rejected from YC and while they don't plaster it on their website, they don't hide it if it comes up. It stands to reason that there are in a pool that large founders that feel one way or the other. The HN wisdom is that if you let such a rejection affect you then you weren't successful start-up founder material to begin with but in reality it isn't all that simple. > YC is not some magic oracle at picking startups. That must be why the chances of getting follow on investment from other investors is so much lower once you reach demo day /s. YC start-ups are generally oversubscribed, especially when compared to non YC start-ups, so even if YC is not an oracle it definitely is a stamp of approval. Lack of such a stamp after trying to obtain it is a negative signal of sorts. And getting continuity funding or not is another signal of that kind. > They just have way better dealflow because of their reputation and how simple their process is. Yes, that reputation is what this is about, and that reputation is in a feedback loop. The process being simple has little to do with it, most start-up accelerators have a simple process. The big factors are: founder friendly, huge alumni network with vast amounts of knowledge, huge pool of people willing to work for YC backed start-ups, coming to America, large chance of finding follow on investment once you are accepted. Note how all it would take to make a play at this is to drop one single line from the YC continuity program terms, which is that YC continuity won't take the lead. The existence of that one line is the sign that they are not yet ready for a play like that. But that won't always be the case and at some point YC will be flush enough that they can run their incubator at the next higher level.
- alexasmyths 9y ago
  As long as the terms are not too severe it might work. YC might reserve the right up to 20% of any given round, at the price the lead investors pick. This is not too onerous. If you're doing A,B,C and pass through due dilligence, well, maybe it's one less hassle, i.e. finding that n-th VC to come in on the round.
- mbesto 9y ago
  A big part of how <insert startup here> got where they are was to do unscalable things, and then they did things that scaled. This is the parent's point - the strategies and behaviors companies exemplify when they are in the early stages is very different from the ones they utilized when they hit scale.